The lead: Adobe reaches 4.91 million cloud subscribers, but may fall short of goal

Adobe Systems reported a strong second quarter Tuesday, but shares slipped after hours on reduced expectations for the current quarter.

The San Jose-based software giant’s second-quarter numbers beat Wall Street expectations, on profits of $147.5 million, or 29 cents per share, up from $88.5 million, or 17 cents a share, a year ago. Analysts had expected earnings of 25 cents per share.

The boost was fuelled by a steady increase in subscribers for the company’s cloud services. In 2013, Adobe, the maker of popular creative software such as Photoshop and Illustrator, moved its offerings from physical discs exclusively to subscription-based services on the cloud. Software subscriptions now account for 66 percent of the company’s revenue, rising by $230 million in the second quarter, to more than $2 billion from its 4.61 million paying subscribers.

“With our business model transition largely behind us, the positive financial benefits are now reflected in our P&L,” Adobe CFO Mark Garrett said in a statement. “We are driving more profit, earnings per share, cash flow and deferred revenue and unbilled backlog.”

Adobe adjusted its third-quarter forecast, however, projecting earnings of 45 to 51 cents per share, below analyst estimates of 54 cents as it appears it will fall short of its goal of getting 6 million subscribers by the end of the year.

IDC analyst Al Hilwa remained bullish: “Adobe had a very strong quarter,” he said in an email. “The company is beginning to execute like a well-oiled machine in both its creative and marketing segments.”

Adobe shares fell more than 1 percent after hours Tuesday, after rising 1.2 percent, or $1.04, to $79.94, during the day after announcing updates to its Creative Cloud service and a new stock photo service.

SV150 market report: Netflix surges, Leapfrog goes splat

Markets gained slightly Tuesday, as Wall Street looked ahead to the end of a key Federal Reserve meeting Wednesday, which may give indications of when the Fed will begin raising interest rates from near zero.

Twitter shares rose 0.4 percent, or 14 cents, to $34.81 as outgoing CEO Dick Costolo remained tight-lipped over who may be his permanent replacement, or what advice he would give them. “I don’t have any ego about ‘you have to do this this way,'” Costolo said at the Bloomberg Technology Conference in San Francisco, according to the Merc’s Queenie Wong. “There are so many different ways to be successful.”

The San Francisco-based social network also launched autoplay capabilites for GIFs, Vines and native videos. The move may be the first step toward autoplay video ads, such as those on Facebook, which would bring a much-needed revenue source to Twitter.

Netflix stock surged almost 2 percent, or $12.89, to $666.91, as Needham analyst Laura Martin raised her target price from $600 to $780, saying its overseas subscribers are likely to be far more profitable than those in the U.S. The Los Gatos video-on-demand company also unveiled a new user-friendly design for its website. Google shares rose 0.34 percent, or $1.87, to $544.87, as the Mountain View tech giant unveiled YouTube Gaming, a livestreaming service that will go head-to-head with video-game livestream service Twitch. Electronic Arts jumped 2.1 percent, or $1.29, to $62.86, after the Mountain View video game company showed off its upcoming “Star Wars” games at E3 in Los Angeles on Monday.

Emeryville kid-tech maker Leapfrog tumbled 5.44 percent, or 8 cents, to $1.39, hitting a new 52-week-low in the wake of a poor earnings report last week. Troubled San Francisco video-game maker Zynga slumped 1.34 percent, or 4 cents, to $2.95, after buying CEO Mark Pincus’ incubator, Superlabs, for an estimated $1.1 million. Oakland-based streaming radio leader Pandora fell 1.75 percent, or 30 cents, to $16.56, as investors try to figure out the effect Apple’s new streaming music service will have on it.